Goldman Sachs Vice Chairman Says Aussie M&A Market Scary

It’s not often you hear investment bankers describe market conditions as “scary”.

But as Goldman Sachs Managing Director and Vice Chairman for Australia Alastair Lucas admits, Australia is in an “extraordinary slump”. The veteran who has spent more than three decades generating deals, believes the industry is uncharted — and unwelcome — territory.

Reuters

“I’ve never seen market conditions quite as extraordinary as the ones we have at the moment, I’ve certainly never seen market conditions as scary as they are,” Mr. Lucas said at a Financial Services Institute of Australasia conference on Wednesday.

Mr. Lucas said uncertainty — mostly driven by the Eurozone — was behind Australia’s dearth in M&A and equity capital market activity In 2012 to date, a combined US$344 million has been raised via initial public offerings, a far cry from the billion dollar deals that have been priced across the globe.

“Where there is great market uncertainty, the way to [introduce] certainty into transactions is to lower the price but vendors are not prepared to lower expectations enough to get transactions away which is why we’re having a drought,” Mr. Lucas said.

Royal Bank of Scotland — soon to be renamed as CIMB Group Holdings — chairman of investment banking Simon Perrott said to be successful, future IPOs would need to present a differentiated investment case at a price that appears compelling to investors.

“What we have seen in the past twelve months is businesses which meet certain criteria but there is a substantial bid-offer spread between what the market is prepared to pay and what the vendors think the business is worth,” Mr. Perrott said.

Due to the opportunity presented by depressed equity markets, Mr. Lucas, and peers including UBS co-head of mergers and acquisitions Daniel Kleijn, have been encouraging clients to pull the trigger on company-making acquisitions.

“Outbound M&A has dried up notwithstanding that we’re better positioned with a strong dollar than we have been for a generation,” mused the Goldman Vice Chairman, while Mr. Kleijn added that boards should step up and consider M&A to achieve better cost or competitive structures.

The duo also called out the Australian Competition & Consumer Commission, or ACCC, which has the power to delay or block deals which could change the competitive landscape.

“Complaints [in response to takeovers] come from parties seeking to improve their own competitive position. You need a very strong regulator that has a lot more outside help than it gets today in particular sectors to understand issues so that they’re not regulating to make someone else stronger,” Mr. Kleijn said.

Mr. Lucas also took a swing at the regulator, noting that the ACCC made transactions like the A$1.9 billion Foxtel-Austar merger — which eventually was approved — more difficult by not recognizing the deal on its synergy-driven merits. “The ACCC ran almost a zealous pursuit of the competitive issue without taking into account the economic benefit of the combination,” he said.

While on the topic of regulators, Mr. Lucas also sympathized with Australia’s Foreign Investment Review Board which he sees as needing to decipher political and economic motives from offshore entities. “The rate of development of Chinese cities is a proper political consideration but it might not be a consideration that we in Australia would want taken into account when it comes into the development of an Australian asset,” he explained.

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About Deal Journal Australia

Deal Journal Australia is an up-to-the-minute take on the deals and deal makers that shape the Australian landscape, including mergers and acquisitions, capital raisings, private equity and debt markets. In short, wherever money changes hands. Deal Journal Australia is updated throughout each trading day with exclusive commentary, analysis, data, news flashes and profiles. The Wall Street Journal’s Gillian Tan is the lead writer, with contributions from other Journal and Dow Jones reporters and editors. Send news items, comments and questions to gillian.tan@wsj.com.

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